Privilege Protections for Inter–Company Communications

A North Carolina court held that the attorney–client privilege extends to legal-advice communications between a company and one of its minority corporate owners.  And importantly, the court included a good discussion of the interplay between the “joint client” doctrine and the common interest doctrine.  SCR–Tech LLC v. Evonik Energy Servs., LLC, 2013 WL 4134602 (N.C.Super. Ct. Aug. 13, 2013).  You may access the court’s opinion here.

The underlying issue is whether the attorney–client privilege protects communications (involving legal counsel) shared between a company and an affiliated company, such as in a parent–subsidiary relationship.  And if so, at what degrSlide1ee of relationship does the privilege apply.  Does the privilege extend to a wholly owned subsidiary? A minority corporate owner? Two companies with common ownership?

The SCR–Tech case sheds some light on the matter.  Ebinger, a corporation, owned 37% of SCR–Tech GmbH which, in turn, owned 100% of SCR–Tech LLC.  Ebinger, SCR–Tech LLC, and legal counsel engaged in several communications pertaining to negotiations that ultimately led to the sale of SCR–Tech LLC to an unrelated third entity.  In subsequent litigation, the defendant moved to compel these communications, claiming that Ebinger was not SCR–Tech LLC’s parent for purposes of extending the attorney–client privilege.  The court disagreed and invoked concepts of “joint client” and the common interest doctrine to support its decision.

Joint Client Doctrine and Common Interest Doctrine

The court noted that many lawyers and courts improperly interchange the “joint client” doctrine and the common interest doctrine (or joint defense doctrine).  These concepts are distinct and contain “analytical differences.”  The joint client doctrine focuses on client identity and the relationship between two entities.

The common interest doctrine, however, focuses on the common legal interests between two entities regardless of their relationship.  The doctrine is not an independent privilege, but rather a doctrine of non-waiver that allows parties with aligned legal interests to share privileged information without waiving the privilege.

Sufficient Relationship?

Rather than drawing a bright-line rule that a corporation must own a certain percentage of an affiliated corporate entity before the joint client doctrine applies, the court looked at the totality of circumstances to determine whether the entities “are sufficiently united such they may properly be considered joint clients.” If the degree of common ownership is sufficient to evidence control of the subject matter of the putatively privileged communications, then the court will apply the joint client doctrine and consider both entities as one client for privilege purposes.

But if the circumstances reveal that the relationship does not rise to that level, then the court will look more at the common legal interest between the two entities to determine whether the common interest doctrine protects the sharing of privileged information.

PoP Analysis.

The SCR–Tech court followed what is, in effect, a proportional analysis.  The privilege’s application will not depend on whether one corporate entity owns or controls a certain percentage of another.  Rather, the court will look at the identity of legal interest, including the percentage ownership, to determine whether it should consider both entities as one client for privilege purposes.  The greater the ownership interest, the greater likelihood of sustaining the privilege under the joint client doctrine.  The lesser the ownership interest, then the less likelihood that the joint client doctrine applies.

Practitioners should note this proportional analysis and consider entering into a common interest (or joint defense) agreement with an affiliated company.  Even if a court later rules that the joint client doctrine does not apply, then the corporate entities can rely upon the common interest doctrine to protect the sharing of privileged communications.  For an excellent discussion of the contents of a common interest agreement, see the DRI article profiled in an earlier post.

Excellent IADC Article on Joint Defense Agreements and Joint Defense Privilege 1

Lawyers representing multiple defendants in a single lawsuit regularly share information such as witness-interview notes, deposition summaries, client-interview notes, expert-interview notes, legal memoranda, and other confidentiallawyersagreement information relevant to all defendants.  Defendants are not alone in this information-sharing–plaintiffs’ lawyers in multi-plaintiff cases often share documents in which they have a common interest.  Several privilege-related questions arise when parties share confidential information.  Does sharing confidential information waive any applicable evidentiary privilege or the work-product doctrine? Is a joint defense agreement necessary to preserve privilege assertions? What provisions should a joint defense agreement contain? Are there any disadvantages to entering a joint defense agreement?

In their excellent article, In Unity There is Strength: The Advantages (and Disadvantages) of Joint Defense Groups, 80 Def. Counsel J. 29 (Jan. 2013), published in IADC’s reputable Defense Counsel Journal, Chicago trial lawyers Brad Nahrstadt and Brandon Rogers explore all aspects of joint defense agreements, including the scope of the joint defense privilege.  The article discusses the advantages and drawbacks of forming information-sharing groups and what pre-litigation events trigger a joint defense situation necessary to secure the privilege.  The authors identify a very helpful list of 33 provisions that parties should consider including in their joint defense agreement and, importantly, discuss ethical conflict-of-interest issues that may arise.

The authors remind us that the joint defense privilege, also called the common interest privilege, is not actually an independent privilege, but rather a doctrine of non-waiver.  The joint defense privilege precludes waiver of other evidentiary privileges that protect information shared with the defense group as well as communications among lawyers for parties within the group.  You may access the article at this link, and I recommend it as a “must read” for lawyers drafting joint defense agreements and otherwise wanting to share privileged information without waiving the privilege.

My thanks to authors Brad Nahrstadt and Brandon Rogers and the International Association of Defense Counsel (IADC) for permission to link this article in this post.

Court Provides Guidance on Attorney-Client Privilege and Allied Litigant Doctrine 1

The Texas Supreme Court recently held, in a bad faith case, that communications between an insurer’s attorney and the insured were not protected from discovery by any evidentiary privilege.  And in doing so, the court distinguished and offered guidance on the attorney-client privilege and its interplay with the allied litigant doctrine, common interest doctrine, joint client privilege, and insurer-insured privilege.

In In re XL Specialty Insurance Company, 373 S.W.3d 46 (Tex. 2012), an employee of Cintas Corporation brought a workers’ compensation claim against Cintas’s insurer, XL Specialty, which was resolved after an administrative hearing.  During the administrative hearing, XL Specialty’s outside counsel communicated about the case to Cintas (not its lawyer).  In a subsequent bad faith case brought by the employee against XL Specialty, the employee sought to discover the lawyer’s communications with Cintas.

In a thorough opinion, the Court rejected all privilege claims and ordered production.  Texas’s attorney-client privilege rule, found at Tex. R. Evid. 503, provides, in part, that the privilege protects communications “by the client or representative of the client, or the client’s lawyer or a representative of the lawyer, to a lawyer or a representative of a lawyer representing another party in a pending action and concerning a matter of common interest.”

The Court determined that this rule is appropriately termed the “allied litigant privilege” because it contains pending-action and common-interest requirements. The allied litigant privilege thus protects communications made between a client, or the client’s lawyer, to another party’s lawyer, but not to the other party itself.  And because XL’s lawyer spoke with Cintas (a nonparty), and not a lawyer for Cintas, the allied litigant doctrine did not apply. The Court recognized that XL and Cintas had a shared interest in the underlying workers’ compensation claim, but held that the “rule requires that the communication be made to a lawyer or her representative representing another party in a pending action.”

The Court also rejected and distinguished other related privileges:

Joint Client Privilege

According to the Court, the joint client privilege applies when the same attorney simultaneously represents two or more clients on the same matter.  And communications made to the lawyer for purpose of rendering legal advice to the clients are privileged except where a controversy erupts between the clients.

Joint Defense and Common Interest Doctrines

The Court noted that many courts and lawyers confuse these two doctrines.  While both doctrines apply to communications between parties who have separate counsel, the joint defense doctrine applies only in the context of litigation when multiple parties communicate for purpose of forming a joint defense strategy.  The common interest doctrine works similarly, but is broader as it applies to parties sharing a mutual interest regardless of their status in the pleadings (could be plaintiff and defendant) and regardless whether they are involved in litigation.

Insurer-Insured Privilege

In interesting comments, the Court stated that Texas does not recognize an insurer-insured privilege, but stated that “under certain circumstances, communications between an insurer and insured may be shielded from discovery by the attorney-client privilege.” But because XL did not show that its lawyer’s communications with Cintas fell within Rule 503, the Court did not consider this angle.